Going into business for tax deductions

[street]

So, if I got into the cattle business on shares, how much will it help me out on taxes. I would buy the cattle and someone else would run them and would most likely break even or not break even in most years.

Would it be worth doing for tax deductions or wouldn't it help that much. With RMD coming out 7 to 8 years would be going into some sort of business venture help with less taxes?

 

[38Chevy454]

My suggestion is study the IRS Sch C for business taxes and deductions. Learn all types of the deductible expenses, what counts as income, and how that ultimate loss transfers over to your tax return. I assume you are setting up the business as personal and not as separate company paying it's own taxes. That's why you are asking about the tax loss deduction.

You can also set up a meeting with a CPA type person to help learn the business tax issues. But I think you can learn a lot by studying the IRS Sch C and the Sch C guide available on IRS website. Also do your neighbors or friends run cattle on their property? Talk to them and learn from their experience and knowledge.

 

[street]

My suggestion is study the IRS Sch C for business taxes and deductions. Learn all types of the deductible expenses, what counts as income, and how that ultimate loss transfers over to your tax return. I assume you are setting up the business as personal and not as separate company paying it's own taxes. That's why you are asking about the tax loss deduction.

You can also set up a meeting with a CPA type person to help learn the business tax issues. But I think you can learn a lot by studying the IRS Sch C and the Sch C guide available on IRS website. Also do your neighbors or friends run cattle on their property? Talk to them and learn from their experience and knowledge.

Great info and thank you and yes just personal sideline business. Mostly be the cost of buying and my share of expenses for someone else to run them and my traveling/trips to help with haying, working the cattle in spring and fall.

 

[COcheesehead]

Depending on how the business is structured, you may owe more in taxes.

Also three years of losses and the IRS may consider it a hobby.

The tax deduction fallacy is one of those things people who never had a business think businesses get away with. Which is a joke.

 

[OldShooter]

Err ... So you would give someone else some money and they would waste it, then you get a tax deduction? Seems like it would be quicker and easier to just burn 2/3 of the money in the charcoal grill.

The IRS has lots of rules pertaining to people trying things like this. One simple one is that if a transaction is done strictly to reduce taxes, it is ignored. Another I ran into was that if your business isn't demonstrably seeking a profit and actually showing a profit in at least 2 out of 5 years it is considered a hobby business and losses are deductible only to the extent of the business profits.

Get thee to a good CPA, preferable one with expertise in tax shelters.

 

[street]

When I owned an irrigated farm and rented land on shares, I always made money but had a lot of expenses. It always to help my bottom line with my total income for the year which included my income from my full-time job.

A lot of share cropping or cattle run on shares and people rent out rangeland ect.. Growing up we had cattle and sheep and I have always had an interest in livestock.

 

[Stormy Kromer]

I have raised cattle and I've been in a partnership. Lost a lot of money both times.

I own farm and thought about getting involved again for tax advantages but it wasn't worth it. I wouldn't get in business again for tax write offs. I did much better when I was in business to make money, pay the taxes and move on.

I like cattle and farming, but if I'm not serious about making money I'm going to treat it as a hobby.

 

[Surewhitey]

W*rking to get a deduction to reduce taxes sounds like a plan to lose money WHILE w*rking... No thanks.

I'm a sole proprietor & keep it simple. Make money for as little w*rk as possible. I could get a new ride (write off), but I really don't need it. Keeps it simpler for me.

 

[gauss]

How liquid are the cattle assets?

Can you typically sell them for what you paid for them, or is it more like owning timeshare real estate and their is not much of secondary market?

If the cattle assets are a big part of the investment, I would certainly want to know how this part works.

-gauss

 

[street]

How liquid are the cattle assets?

Can you typically sell them for what you paid for them, or is it more like owning timeshare real estate and their is not much of secondary market?

If the cattle assets are a big part of the investment, I would certainly want to know how this part works.

-gauss

All depends on markets when you calves. Some years you make and some years you lose.

My son and DIL have interest in cattle from her parent's ranch not sure how they do or not. I will ask my son sometime on their deal and yes, you want to be in it for making money just not for a tax deduction.

 

[madatrub]

How about oil fields instead? IDC tax breaks are pretty beneficial.

 

[pjm-7]

Don't let taxes wag the dog. The IRS is very aware of enterprises that claim to provide tax write offs but have no real investment purpose. Cattle feeding just for write offs is a very big red flag for an audit. If you have never been engaged in agriculture, you might as well just go ahead and schedule your audit now since you will be on their radar. Full disclosure I was previously in the brokerage business trading livestock futures and later in my working life I worked as a tax auditor.

 

[mrfeh]

Don't let taxes wag the dog.

+1

Seems like an unnecessary risk just in an attempt to reduce taxes.

 

[pb4uski]

Sounds like waving a big 'ol hobby loss flag in front of the IRS.

 

[SecondCor521]

Farming, including livestock, goes on Schedule F it looks like.

I don't know details, but my guess would be that the rules make it difficult if not impossible to usefully get writeoffs. OP is not the first person to come up with this idea.

 

[Koolau]

When I owned an irrigated farm and rented land on shares, I always made money but had a lot of expenses. It always to help my bottom line with my total income for the year which included my income from my full-time job.

A lot of share cropping or cattle run on shares and people rent out rangeland ect.. Growing up we had cattle and sheep and I have always had an interest in livestock.

My cousin had sheep. They were the dumbest animal God ever created! If there was a way they could get stuck in a fence or have trouble birthing, they would do it. I think that's why people are compared to sheep in the Bible. They need the most tending of all the domestic animals.

 

[ivinsfan]

Farming, including livestock, goes on Schedule F it looks like.

I don't know details, but my guess would be that the rules make it difficult if not impossible to usefully get writeoffs. OP is not the first person to come up with this idea.

Well you write off expenses against cattle income...u can make money or lose money raising cattle..I'm not really sure what street wants to happen in this scenario

 

[Koolau]

Well you write off expenses against cattle income...u can make money or lose money raising cattle..I'm not really sure what street wants to happen in this scenario

I would think the cattle business would be the classic example of (wait for it) eating your mistakes (Have some more steak, dear.)

 

[street]

No not here to break the law or to try to finagle the system on going into business. My wording of the tread may have been misleading. Sorry about that!!

I farmed for years while working full time. Raised a lot of produce sold and supplied sellers with product so not totally ignorant on how and what can be deducted, and all income be reported.

I was just curious if doing a sideline with very little work needed on my part because I would run on shares, if there would be any advantage for me come tax time.

Like I said, and ivinsfan, that it all depends on market value of cattle prices. A hobby maybe and it could be profitable or not depending on the markets.

 

[calmloki]

Sister and BiL lived on 10 acres or so and shared with a close by farmer - he would till the land and plant & harvest, then they split the sale proceeds. Worked out real well as it kept the land clear of blackberries and undergrowth and generated enough income to qualify their land for agricultural property tax rate.

Brother is a farm boy and runs cattle - he is all the time talking about some of the cows being escape artists and fence testers/breakers. Some would find a trail and just lead the rest off into the wilderness. He spent a pile on feed winter before before last and was spending way too much time on their care, so sold them all. Then bought six feeder steers this March to keep the grass down. Bought too few animals too late, so the grass is high and dry and fire is scary - but his two strands of electric fence on one of the fields may get knocked down by a bad actor animal, short/spark and set fire to the place, so.. Cattle aren't much of a hobby, but a darn good way to spend money..

 

[Koolau]

Sister and BiL lived on 10 acres or so and shared with a close by farmer - he would till the land and plant & harvest, then they split the sale proceeds. Worked out real well as it kept the land clear of blackberries and undergrowth and generated enough income to qualify their land for agricultural property tax rate.

Brother is a farm boy and runs cattle - he is all the time talking about some of the cows being escape artists and fence testers/breakers. Some would find a trail and just lead the rest off into the wilderness. He spent a pile on feed winter before before last and was spending way too much time on their care, so sold them all. Then bought six feeder steers this March to keep the grass down. Bought too few animals too late, so the grass is high and dry and fire is scary - but his two strands of electric fence on one of the fields may get knocked down by a bad actor animal, short/spark and set fire to the place, so.. Cattle aren't much of a hobby, but a darn good way to spend money..

We purchased a farm house and lived there several years. My mom and dad had bought the farm laugh and we bought the house from them. They were not farmers so cash rented the place.

First renter ran several dozen cattle in the pasture. The only thing keeping the cattle in was an electric fence. One morning when we woke up, our house was surrounded by cattle. They were eating our lawn grass. I called the owner who showed up 20 minutes later. She was maybe 30 and weighed maybe 90 lbs. She herded the cattle back into the pasture simply by slapping a couple of them on the rump and yelling at them. These cattle were huge. The breed sounded like "Sharley" though I have no idea on the spelling. That's a big animal.

So, if you want a quiet life and secure investment, I'd recommend something other than cattle - or probably any livestock. YMMV

 

[LateToFIRE]

I don't know much about the cattle business other than my neighbor does cattle, but strictly for his own culinary purposes (and I suspect to have a large amount of acreage classified as agricultural for prop tax purposes).

But, I do have some 1st hand experience with small business write-offs. Let's just say that showing consistent losses (like more than 3 consecutive years ) on a small business is a great way to put yourself on the IRS and state audit radar. Get used to having that frequently challenged as to whether it's a legitimate business vs hobby. Of course, the bigger the write-offs relative to the income, the more attention it will attract.

Some of the exceptions, which others may have mentioned are certain oil & gas, sustainable energy, and real estate type business investments which are structured to generate paper losses and are familiar to the tax authorities. I like r.e. myself because the depreciation can be a very nice write-off against rental income.

But, as Koolau likes to say, YMMV.

 

[target2019]

So, if I got into the cattle business on shares, how much will it help me out on taxes. I would buy the cattle and someone else would run them and would most likely break even or not break even in most years.

Would it be worth doing for tax deductions or wouldn't it help that much. With RMD coming out 7 to 8 years would be going into some sort of business venture help with less taxes?

I was surprised to find my Irish cousin with a small cattle farm out back. I think he had about 60. In the previous year he had to sell off the greater part of the herd because of some disease. That's a large set back.

It sounds like your shares keep you away from all of the front line worries. Going there to pitch hay makes you an active participant, I suppose.

My concern would be about the sturcture of this company, and what the other shareholders are doing. For example, say the IRS nails one shareholder on some fraudulent dealing having nothing to do with this cattle business. IRS then looks at all that he is involved in. One thing leads to another, and then the IRS is carefully going over this cattle business, and other sharholders.

 

[Surewhitey]

I know a fella who grows lumber for the ag deduction for his 300 acres in E TX. Seemed to be a hands off idea & gave him a place to hunt for venison & wild pig. The little guys made tasty summer sausage and ribs...

 

[Philliefan33]

If you are buying shares and not doing any work, how many expenses would you even have to be deducted? Sure, there’s expenses in raising the cattle, but wouldn’t they be taken off before you see your share of the income?

How will your income be reported? 1099DIV, 1099Misc, K-1? DH and his siblings have an LLC for the family farm. His share of income is reported on a K-1. We only see the net income, any expenses are accounted for before the net proceeds are divvied up. From our perspective, it is straight income that does not generate a Schedule C or Schedule F.